Three outcomes of the adpocalypse

It appears that Internet advertising is going through a bit of a shakeout. Ad blocking is becoming more pervasive (perhaps 30% of users), and a study by Google indicates that as many as 50% of ad “impressions” are never actually put in front of a human being.

For those that rely on ad revenues in their business, this might seem like a reason for panic. I don’t know if it is! But I see three possible outcomes.

1: Not much

The basic math of “typical” click-through rates indicates that, charitably, 90% of ads are useless. We know it’s a hard problem — very, very good targeting might achieve a 1% CTR.

But this is not news, and advertisers keep paying. This tells me that waste is already priced in to total ad spend. Advertisers pay approximately constant total dollars for customer acquisition — and if this requires a lot of wasted ads, the advertisers tacitly accept it.

In effect, advertisers do not really “pay” for the wasted ads.

Yes, obviously, many advertisers choose to pay per impression, but their return on investment is measured in paying customers. That’s the reason they write the check. Impressions are merely a messy means to an end.

The devil, then, is in the inefficiency. (I have to believe that ad blockers select for people who are less likely click on those ads in any case.)

It’s possible that “ad blocking” really means removing waste from the total pool of impressions, while advertisers retain approximately the same overall ROI.

2: Native ads

This is already happening in many forms. Like in the old days where the radio DJ would pitch a product on air as part of their show, or Jennifer Aniston holds a can of Coke on Friends, or a golfer sports a Nike logo on their hat.

Similarly, you might see explicitly sponsored content on Medium, product placement in an app (think billboards in a video game) and or pre-rolls being encoded directly into cat videos.

We might even file this one under “not much” — product placement has never not been.

3: DRM

What if the web (and apps) become DRM’d such that ad blockers cannot interact with the content at all? I haven’t seen it, though the first place I’d expect to is in video (much of which is already DRM’d).

This would be a bad and reactionary outcome, and I suspect it wouldn’t succeed, at least on the web. It wouldn’t be too hard in apps and video, however.

My take

…is that ads are wildly inefficient so we should expect market participants who are hurt by this inefficiency (end users) will welcome tools to ease the pain. Ad blockers are a market reaction, and should be understood as data, not outrage.

There are vested interests in the status quo (including the authors of the ad blocking study at top), and so some reaction is to be expected. But this reaction is self-serving, and perhaps self-defeating.

Much like the early days of digital music piracy (led by Napster), many people make dire predictions and try to fight change. Others (like Steve Jobs with iTunes) instead prefer to understand the signals customers are sending, and try to do better.

Published by Matt Sherman on September 7, 2015